Examples of this concept in action include the Rat Race, in which agents expend resources on some task that fails to distinguish their type because not doing so would reveal themselves unfavorably. In that case, signaling does not support a separating equilibrium. Another example of this concept is the insurance market of Rothschild and Stiglitz, in which agents with differing probabilities of illness are screened by an insurer. In that case, a pooling equilibrium is pareto-superior to a separating one but vulnerable to
Examples of this concept in action include the Rat Race, in which agents expend resources on some task that fails to distinguish their type because not doing so would reveal themselves unfavorably. In that case, signaling does not support a separating equilibrium. Another example of this concept is the insurance market of Rothschild and Stiglitz, in which agents with differing probabilities of illness are screened by an insurer. In that case, a pooling equilibrium is pareto-superior to a separating one but vulnerable to cream-skimming. A third example is an asset market in which the seller is better-informed about the asset's value, and though the buyer would be willing to transact for any known asset value, the seller's superior knowledge dissuades the buyer from any proposal. For ten points, name this type of asymmetric information, exemplified by Akerlof's "The Market for Lemons."
Examples of this concept in action include the Rat Race, in which agents expend resources on some task that fails to distinguish their type because not doing so would reveal themselves unfavorably.
{Adverse Selection} (prompt on “{Asymmetric Information}” before it is read)